- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 3. Modigliani-Miller Capital Structure Propositions
CFA Practice Question
The value of the firm in the presence of debt may risk financial distress. Bankruptcy, the most severe type of financial distress, impacts value by:
B. the level of risk aversion investors have to debt.
C. the total value of the firm being split off to cover bankruptcy costs.
D. payments necessary to cover wages and salaries.
E. costless reorganization creating firm instability.
A. the risk or probability that it may occur.
B. the level of risk aversion investors have to debt.
C. the total value of the firm being split off to cover bankruptcy costs.
D. payments necessary to cover wages and salaries.
E. costless reorganization creating firm instability.
Correct Answer: C
User Contributed Comments 2
| User | Comment |
|---|---|
| sarath | In the event of bankruptcy the firm will have to first cover all the bankruptcy costs...so effectively its splitting the total value of the firm to cover bankruptcy costs... |
| davidt87 | I thought this was a trick question where both A and C were right. Is A not right? |